The carbon tax increase will have minimal effect on oil sands development, as growth in that sector has largely halted owing to low oil prices. Although the plan will cap total greenhouse gas emissions at 100 megatonnes per year for oil sands, that target will not be reached for some time.

Moody’s also notes that although the strategy will completely phase out coal emissions in Alberta by 2030, the timeframe provides power operators the opportunity to transition away from coal toward renewable fuel sources that the government expects will replace roughly two-thirds of lost coal production.

“There is also the possibility that the government will compensate companies forced to close their units before the end of their useful life,” says Gavin MacFarlane, a Moody’s Vice President and Senior Analyst. “Such a move would benefit the owners of plants like Keephills 3, which is jointly owned by TransAlta and Capital Power, that would have operated until 2061.”

While the carbon tax will likely cause the price of power derived from coal to rise, power customers rather than the generation companies themselves generally bear the heightened costs. And for companies that sell power, the offtakers such as TransCanada Corporation (Baa1/stable) take on the cost, but the higher coal prices will support coal margins, according to the attached report.

The strategy also reallocates some of the new revenue from carbon emissions across the province’s population to minimize the impact on the broader economy. “We expect Alberta to offer new programs to help offset the carbon charge, including offsets to low and middle-income households and support transition to affected workers.”